Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Pilgrims Pride Corp (PPC, Financial) reported net revenues of $4.6 billion for Q2 2024, a 5.8% increase over the same quarter last year.
- Adjusted EBITDA was $656 million, up 164% versus Q2 of 2023, with an adjusted EBITDA margin of 14.4% compared to 5.8% last year.
- The company's US case-ready business continued to grow through key customer partnerships, promotional activities, and innovation.
- In Europe, the profitability journey continues to move forward with optimized mix and enhanced manufacturing network.
- Mexico's results improved significantly due to balanced market supply and demand, favorable input costs, and strong execution of strategies.
Negative Points
- The company recorded a $71 million charge in the quarter associated with a settlement related to previously disclosed growers litigation.
- Despite improvements, the European business incurred approximately $36.7 million of restructuring charges during the quarter.
- The industry continues to face challenges with hatchability and mortality issues, impacting overall production efficiency.
- Export volumes have decreased almost double digits as domestic demand continues to grow, replacing exported cuts.
- The company anticipates increased advertising and marketing costs in the second half of the year, which may impact overall SG&A expenses.
Q & A Highlights
Q: Can you elaborate on the growth opportunities and CapEx increase?
A: Fabio Sandri, President and CEO: We see strong demand for chicken and opportunities to support key customer growth through investments in differentiated products. We are also exploring acquisitions in chicken, branded prepared food offerings, and new geographies. Additionally, we are expanding our protein conversion capacity to add value and reduce operational risks.
Q: What are the trends for Q3, particularly in the US commodity market and Mexico?
A: Fabio Sandri, President and CEO: In Mexico, demand for chicken is growing, and we are expanding our presence. However, the market can be volatile due to live bird market dynamics. In the US, despite higher egg production, hatchability and mortality issues are limiting supply growth. We expect normal seasonal cuts in production.
Q: What is the historical context for the current market cycle?
A: Fabio Sandri, President and CEO: Similar conditions were seen in 2014, 2017, and 2004. However, today's market is different due to a more diversified portfolio and higher consumer demand for chicken driven by affordability compared to beef. The current inflationary environment also influences consumer behavior.
Q: How has the mix of branded and value-added products changed, and what is the impact on margins?
A: Fabio Sandri, President and CEO: We are investing in differentiated products like Just Bare and innovative offerings under the Pilgrim's brand. This shift towards branded and value-added products is expected to provide more stable margins and drive growth.
Q: What are the long-term aspirations for the Mexico market?
A: Fabio Sandri, President and CEO: We aim to grow as a food company in Mexico, expanding beyond chicken into value-added prepared foods. We see opportunities for both organic growth and acquisitions to enhance our presence in the region.
Q: How do disease pressures affect poultry trade, particularly Newcastle in Brazil?
A: Fabio Sandri, President and CEO: Diseases like avian influenza and Newcastle can impact trade, but regionalization of trade restrictions helps minimize disruptions. Recent cases in Brazil have been managed through regional restrictions.
Q: What are the key drivers for margin expansion in the UK, and how do they differ across segments?
A: Fabio Sandri, President and CEO: Margin expansion in the UK is driven by network and back-office integration, innovation, and key customer partnerships. We see growth in branded offerings like Richmond and Fridge Raiders, which are outpacing private label products.
Q: How should we think about US supply cuts in Q4 given industry profitability?
A: Fabio Sandri, President and CEO: Despite strong demand, normal seasonal cuts are expected due to lower winter demand and ongoing hatchability and livability issues. USDA data suggests moderate supply growth for the second half of the year.
Q: How should we think about the impact of cost pass-through contracts on European margins?
A: Fabio Sandri, President and CEO: There is a lag in cost pass-through, but with more gradual cost reductions, the impact is less pronounced. Margin improvements are driven by manufacturing efficiencies, restructuring, and innovation.
Q: What was the rationale behind the recent bond buybacks?
A: Matthew Galvanoni, CFO: The Board authorized $200 million for debt repurchases to utilize cash and reduce gross leverage. We targeted the 2031 notes for their liquidity and value.
Q: How should we think about working capital benefits for the rest of the year?
A: Matthew Galvanoni, CFO: While we expect strong cash generation, it may not match the first half's pace. Grain price declines and inventory reductions contributed to the first half's performance. We anticipate normal working capital patterns in the second half.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
